The Number Of Large-Cap Companies Publicly Subjected To Demands Rose Again

For those who haven’t yet downloaded a copy of the Review but need a crib sheet to get through the day’s meeting (everyone will be talking about it, don’t you know), I thought it made sense to cover some of the key findings.

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First, although the volume of activism was down in 2017, there were areas of growth. In particular, the number of large-cap companies publicly subjected to demands rose again (overall, they represented a two percentage point greater share of all companies targeted than last year). In Europe and Asia, M&A activism increased; in the U.S., M&A activism may have been held back until this year thanks to the belated passage of tax cuts but the campaigns that took place around deals in 2017 presage a greater depth to activist tinkering in strategy following transactions.

Companies fighting back harder is a clear theme. Analyzing U.S.-headquartered companies exclusively, settlements in demands for board representation fell six percentage points between 2016 and 2017, and the number of board seats gained through settlements fell from 244 to 169, even as proxy contests that went to vote became (marginally) more rewarding.

Looking ahead to 2018, the Review predicts that policy changes and growth will help activism spread throughout Europe and Asia. It also covers attempts to limit activism in the U.S., and some of the major topics that will have an impact on shareholder voting in 2018. An article by our sister company, Proxy Insight, provides the European perspective on U.S. compensation, an angle that is often not deeply explored.

We also used the Review to highlight some of our own predictions for how activist campaigns will play out in 2018. While we are not necessarily expecting record activity without a sell-off, a prediction that may be wrong given the blistering start we had in January, we think more companies at turning points will find shareholders suggesting updates to their strategies. Track record, persistence, and environmental, social, and governance credentials will become more important.

I hope the Review provides a thoughtful reflection on the past year in activism. Even more than that, I hope it sparks something of a debate about where the industry is heading over the next few years. If you have comments about any aspect of it, please don’t hesitate to drop me an email.

Shareholder activism has gotten off to a record start in 2018. 81 companies were publicly subjected to activist demands worldwide in January, a 9% increase from the peak – in 2016 – and 14% on 2017. Much of the increase came from Asia and Australia – both enjoying hot starts to the year – while Canada has had a much faster start than last year. The U.S. has taken a leap forward compared to last year and was just one company off 2016’s peak, while dedicated activists were responsible for fewer than half the campaigns – down from 75% in 2015.

I spoke with Andrew Freedman, co-head of Olshan Frome Wolosky’s activism practice, about the frenetic start to 2018. He told me Olshan had already delivered 12 nomination letters, and while February would be an even better determinant of how busy this year is shaping up to be, “If January is any indication, it could be one heck of a proxy season.”

An underlying factor may be a continued decline in settlements – last January saw a fair few before fights overtook that narrative – and Freedman notes that activists have generally found companies more resistant to early settlements so far this year. “Nary an activist is going to let a nomination deadline go without at least preserving their right to a proxy statement,” he added.

Quote of the week comes from Paula Loop, Catherine Bromilow, and Leah Malone of PwC’s Governance Insight Center, writing in the Harvard Law School Forum on Corporate Governance and Financial Regulation on “The changing face of shareholder activism”:

“While many hedge funds had been thought of as being too focused on short-term gains, the longer-term operational activism has helped to shift that perception.”